As a small or medium-sized enterprise (SME), investing in a database provides worthwhile insights and prospects to grow the business. However, understanding whether this investment generates a positive return on investment (ROI) is vital to operations. This way, businesses can make informed decisions and maximise investment potential. This guide shares practical tips and strategies to measure the ROI of an SME database investment’s ROI and help make data-driven business decisions.
How to calculate Return on Investment (ROI)
There are two ways SMEs can calculate ROI.
Return on Investment = Net Return on Investment Cost /Cost of Investment ×100%
Return on Investment = Final Value of Investment (FVI)− Initial Value of Investment (IVI) /Cost of Investment ×100%
How to measure the Return on Investment
Here is how small businesses can measure the return on investment:
1. Establishing goals
Setting goals will help clarify what the business wants to achieve from its SME database investment. The goals may include the generation of new leads, boosting sales or receiving customer surveys. No matter the purposes of the business, it’s possible to align goals with database marketing campaigns.
2. Understand what to measure.
After identifying the main goals for the campaign, it’s crucial to identify Key Performance Indicators(KPIs). It will help determine whether the business is achieving the goals set. Additionally, it will help track progress at various campaign stages. There are multiple KPIs that the company can measure, but it trickles down to the goals and the KPIs that align with them. Some of the KPIs to use include:
- Conversion rates
- Net profit
- Volumes of leads generated
- Number of new purchases
- Average sale volume
3. Use the ROI formula database marketing
There are different ways to calculate return on investment using the SME database. However, this depends on the complexity and comprehensiveness. The simple formula to calculate ROI comprises gain from investment, subtracting the cost of investment and dividing by the cost of investment. It is also possible to calculate ROI based on revenue. The formula will be ROI= campaign revenue x profit margin/cost of the campaign. However, businesses can compare metrics like click-throughs, open rates, conversion rates and cost of customer acquisition.
4. Consider seasonality when calculating ROI
In business, it’s crucial to consider high and low seasons when calculating ROI. A specific month might be slow, but people may wait for the financial year to purchase. Therefore, getting external business that will help plan future campaigns is vital. Don’t become overwhelmed with unnecessary complexity. In business, making a shortlist of items is crucial to measure, track and respond to. The most critical thing is to put all findings to work and clarify and develop future database investments depending on the outcomes. Every campaign a business runs gives better and more accurate statistics about its target market.
Measuring ROI is vital for businesses to know if they are making losses or profits. When doing this, they must use suitable mediums for the best outcomes. When measuring the ROI, a business has to evaluate goals, consider seasonality and understand what to measure for the best results.